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| 8-K - 8-K - PEGASYSTEMS INC | q420198k.htm |
EXHIBIT 99.1
Pega Cloud ACV Grows 54% in 2019
• | Total ACV up 22% to $693 million, powered by Pega Cloud Choice™ |
• | Pega Cloud Backlog up 41% to $422 million |
• | Pega Cloud Revenue up 62% to $134 million |
• | 2020 Guidance: Revenue $1.1 billion |
CAMBRIDGE, Mass. — February 12, 2020 — Pegasystems Inc. (NASDAQ: PEGA), the software company empowering digital transformation at the world’s leading enterprises, released its financial results for the fourth quarter and full year 2019.
“We delivered a very strong Q4, capping off a solid year, and we’re excited about our prospects in this new decade,” said Alan Trefler, founder and CEO, Pegasystems. “We have a tremendous opportunity to help our clients achieve their digital transformation goals, and I’m confident in our ability to execute.”
“Total ACV increased 22% year over year, reaching $693 million, and total Backlog increased by 33% to $836 million,” said Ken Stillwell, CFO, Pegasystems. “We expect these outstanding results to set the foundation for Pega to breakthrough $1 billion in annual revenue in 2020.”
Financial and performance metrics (1)
(Dollars in thousands, except per share amounts) | Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||||||
2019 | 2018 | Change | 2019 | 2018 | Change | ||||||||||||||||
Total revenue | $ | 276,542 | $ | 256,357 | 8 | % | $ | 911,383 | $ | 891,581 | 2 | % | |||||||||
Subscription revenue (2) | $ | 189,486 | $ | 142,273 | 33 | % | $ | 613,759 | $ | 524,758 | 17 | % | |||||||||
Net income (loss) - GAAP | $ | 918 | $ | 16,413 | (94 | )% | $ | (90,433 | ) | $ | 10,617 | * | |||||||||
Net income (loss) - Non-GAAP | $ | 15,682 | $ | 26,480 | (41 | )% | $ | (35,082 | ) | $ | 46,006 | * | |||||||||
Diluted earnings (loss) per share - GAAP | $ | 0.01 | $ | 0.20 | (95 | )% | $ | (1.14 | ) | $ | 0.13 | * | |||||||||
Diluted earnings (loss) per share - Non-GAAP | $ | 0.19 | $ | 0.32 | (41 | )% | $ | (0.44 | ) | $ | 0.55 | * | |||||||||
* not meaningful
(1) A reconciliation of the GAAP measures to our Non-GAAP measures is contained in the financial schedules at the end of this release.
(2) Reflects client arrangements (term license, cloud, and maintenance) that are subject to renewal.
(Dollars in thousands) | Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||||||||||||
2019 | 2018 | Change | 2019 | 2018 | Change | ||||||||||||||||||||||||||||||
Cloud | $ | 39,136 | 14 | % | $ | 24,660 | 10 | % | $ | 14,476 | 59 | % | $ | 133,746 | 15 | % | $ | 82,627 | 9 | % | $ | 51,119 | 62 | % | |||||||||||
Term license | 77,176 | 28 | % | 50,186 | 20 | % | 26,990 | 54 | % | 199,433 | 22 | % | 178,256 | 20 | % | 21,177 | 12 | % | |||||||||||||||||
Maintenance | 73,174 | 27 | % | 67,427 | 25 | % | 5,747 | 9 | % | 280,580 | 30 | % | 263,875 | 30 | % | 16,705 | 6 | % | |||||||||||||||||
Subscription | 189,486 | 69 | % | 142,273 | 55 | % | 47,213 | 33 | % | 613,759 | 67 | % | 524,758 | 59 | % | 89,001 | 17 | % | |||||||||||||||||
Perpetual license | 36,729 | 13 | % | 53,034 | 21 | % | (16,305 | ) | (31 | )% | 80,015 | 9 | % | 109,863 | 12 | % | (29,848 | ) | (27 | )% | |||||||||||||||
Consulting | 50,327 | 18 | % | 61,050 | 24 | % | (10,723 | ) | (18 | )% | 217,609 | 24 | % | 256,960 | 29 | % | (39,351 | ) | (15 | )% | |||||||||||||||
Total revenue | $ | 276,542 | 100 | % | $ | 256,357 | 100 | % | $ | 20,185 | 8 | % | $ | 911,383 | 100 | % | $ | 891,581 | 100 | % | $ | 19,802 | 2 | % | |||||||||||
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Annual contract value (“ACV”) (1)
The change in ACV measures the growth and predictability of future cash flows from committed Pega Cloud and Client Cloud arrangements as of the end of the particular reporting period.
(1) See schedules at the end of this release for additional information.
Remaining performance obligations ("Backlog")
Expected future revenue on existing contracts:
December 31, 2019 | |||||||||||||||||||||||||
(Dollars in thousands) | Perpetual license | Term license | Maintenance | Cloud | Consulting | Total | |||||||||||||||||||
1 year or less | $ | 2,305 | $ | 97,826 | $ | 206,882 | $ | 165,571 | $ | 20,798 | $ | 493,382 | 58 | % | |||||||||||
1-2 years | 2,179 | 12,014 | 30,291 | 128,109 | 1,439 | 174,032 | 21 | % | |||||||||||||||||
2-3 years | — | 3,132 | 17,844 | 84,788 | 132 | 105,896 | 13 | % | |||||||||||||||||
Greater than 3 years | — | 3,861 | 13,277 | 43,702 | 1,993 | 62,833 | 8 | % | |||||||||||||||||
$ | 4,484 | $ | 116,833 | $ | 268,294 | $ | 422,170 | $ | 24,362 | $ | 836,143 | 100 | % | ||||||||||||
Change in Backlog Since December 31, 2018 | |||||||||||||||||||||||||
$ | (14,185 | ) | $ | 32,453 | $ | 60,380 | $ | 123,353 | $ | 3,169 | $ | 205,170 | |||||||||||||
(76 | )% | 38 | % | 29 | % | 41 | % | 15 | % | 33 | % | ||||||||||||||
December 31, 2018 | |||||||||||||||||||||||||
(Dollars in thousands) | Perpetual license | Term license | Maintenance | Cloud | Consulting | Total | |||||||||||||||||||
1 year or less | $ | 14,665 | $ | 72,378 | $ | 192,274 | $ | 103,354 | $ | 17,235 | $ | 399,906 | 63 | % | |||||||||||
1-2 years | 2,343 | 10,355 | 10,436 | 80,214 | 2,810 | 106,158 | 17 | % | |||||||||||||||||
2-3 years | 1,661 | 1,414 | 3,644 | 61,906 | 940 | 69,565 | 11 | % | |||||||||||||||||
Greater than 3 years | — | 233 | 1,560 | 53,343 | 208 | 55,344 | 9 | % | |||||||||||||||||
$ | 18,669 | $ | 84,380 | $ | 207,914 | $ | 298,817 | $ | 21,193 | $ | 630,973 | 100 | % | ||||||||||||
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Guidance for 2020
As of February 12, 2020, we are providing the following guidance:
Year Ended December 31, 2020 | |||||||
(in millions, except per share amounts) | GAAP | Non-GAAP (1) | |||||
Revenue | $ | 1,100 | $ | 1,100 | |||
Net income (loss) | $ | (70.5 | ) | $ | 16.7 | ||
Diluted earnings (loss) per share | $ | (0.89 | ) | $ | 0.20 | ||
(1) A reconciliation of our GAAP and Non-GAAP guidance is contained in the financial schedules at the end of this release.
Quarterly conference call
A conference call and audio-only webcast will be conducted at 5:00 p.m. EDT on February 12, 2020.
Members of the public and investors are invited to join the call and participate in the question and answer session by dialing 1-866-548-4713 (domestic), 1-323-794-2093 (international), or via webcast by logging onto www.pega.com at least five minutes prior to the event's broadcast and clicking on the webcast icon in the Investors section.
A replay of the call will also be available on www.pega.com/about/investors by clicking the earnings calls link in the Investors Relations section.
Discussion of Non-GAAP financial measures
To supplement the financial results presented in accordance with generally accepted accounting principles in the U.S. (“GAAP”), we provide Non-GAAP measures, including in this release. We utilize several different financial measures, both GAAP and Non-GAAP, in analyzing and assessing the overall performance of the business, for making operating decisions, and for forecasting and planning for future periods. Our annual financial plan is prepared on both a GAAP and a Non-GAAP basis. In addition, because of the importance of these measures in managing the business, we use Non-GAAP measures and financial performance results in the evaluation process to establish management’s compensation.
The Non-GAAP measures exclude the effects of stock-based compensation expense, amortization of intangible assets, and foreign currency transaction gains and losses. We believe these Non-GAAP measures are helpful in understanding our past financial performance and our anticipated future results.
These Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures. They should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.
A reconciliation of the GAAP measures to our Non-GAAP measures is contained in the financial schedules at the end of this release.
Forward-looking statements
Certain statements contained in this press release may be construed as “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995
These forward-looking statements are based on current expectations, estimates, forecasts, and projections about the industry and markets in which we operate and management’s beliefs and assumptions. In addition, other written or oral statements that constitute forward-looking statements may be made by us or on our behalf. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “could,” “estimate,” “may,” “target,” “strategy,” “project,” “guidance,” “likely,” “usually,” or variations of such words and similar expressions are intended to identify such forward-looking statements.
Important factors that could cause actual future activities and results to differ materially from those expressed in such forward-looking statements include, among others, management of our transition to a more subscription-based business model, variation in demand for our products and services, the adequacy of our liquidity and capital resources, compliance with our debt obligations and debt covenants, reliance on third-party relationships, reliance on key personnel, the inherent risks associated with international operations and the continued uncertainties in the global economy, our continued effort to market and sell both domestically and internationally, foreign currency exchange rates, the potential legal and financial liabilities and reputation damage due to cyber-attacks and security breaches, and management of our growth. These risks and other factors that could cause actual results to differ materially from those expressed in such forward-looking statements are described further in Part I of our Annual Report on Form 10-K for the year ended December 31, 2019, and other filings we make with the U.S. Securities and Exchange Commission (“SEC”). These documents are available on the Company’s website at www.pega.com/about/investors.
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Investors are cautioned not to place undue reliance on such forward-looking statements, and there are no assurances that the results contained in such statements will be achieved. Although new information, future events, or risks may cause actual results to differ materially from future results expressed or implied by such forward-looking statements, except as required by applicable law, we do not undertake and expressly disclaim any obligation to publicly update or revise these forward-looking statements whether as the result of new information, future events, or otherwise.
The forward-looking statements contained in this press release represent the Company’s views as of February 12, 2020.
About Pegasystems
Pega is the leader in cloud software for customer engagement and operational excellence. The world’s most recognized and successful brands rely on Pega’s AI-powered software to optimize every customer interaction on any channel while ensuring their brand promises are kept. Pega’s low-code application development platform allows enterprises to quickly build and evolve apps to meet their customer and employee needs and drive digital transformation on a global scale. For more than 35 years, Pega has enabled higher customer satisfaction, lower costs, and increased customer lifetime value.
For more information on Pegasystems (NASDAQ: PEGA) visit www.pega.com.
Press contact:
Lisa Pintchman
Pegasystems Inc.
lisa.pintchman@pega.com
(617) 866-6022
Twitter: @pega
Investor contact:
Garo Toomajanian
ICR for Pegasystems Inc.
pegainvestorrelations@pega.com
(617) 866-6077
All trademarks are the property of their respective owners.
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PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Revenue | |||||||||||||||
Software license | $ | 113,905 | $ | 103,220 | $ | 279,448 | $ | 288,119 | |||||||
Maintenance | 73,174 | 67,427 | 280,580 | 263,875 | |||||||||||
Services | 89,463 | 85,710 | 351,355 | 339,587 | |||||||||||
Total revenue | 276,542 | 256,357 | 911,383 | 891,581 | |||||||||||
Cost of revenue | |||||||||||||||
Software license | 674 | 1,397 | 3,656 | 5,169 | |||||||||||
Maintenance | 6,341 | 6,530 | 25,656 | 24,565 | |||||||||||
Services | 70,592 | 69,984 | 280,710 | 272,031 | |||||||||||
Total cost of revenue | 77,607 | 77,911 | 310,022 | 301,765 | |||||||||||
Gross profit | 198,935 | 178,446 | 601,361 | 589,816 | |||||||||||
Operating expenses | |||||||||||||||
Selling and marketing | 133,395 | 103,650 | 474,459 | 373,495 | |||||||||||
Research and development | 52,408 | 46,449 | 205,210 | 181,710 | |||||||||||
General and administrative | 14,877 | 12,894 | 56,570 | 51,643 | |||||||||||
Total operating expenses | 200,680 | 162,993 | 736,239 | 606,848 | |||||||||||
(Loss) income from operations | (1,745 | ) | 15,453 | (134,878 | ) | (17,032 | ) | ||||||||
Foreign currency transaction gain (loss) | 1,242 | 1,863 | (2,335 | ) | 2,421 | ||||||||||
Interest (loss) income, net | (15 | ) | 629 | 1,808 | 2,705 | ||||||||||
Other income, net | 181 | — | 559 | 363 | |||||||||||
(Loss) income before (benefit from) provision for income taxes | (337 | ) | 17,945 | (134,846 | ) | (11,543 | ) | ||||||||
(Benefit from) provision for income taxes | (1,255 | ) | 1,532 | (44,413 | ) | (22,160 | ) | ||||||||
Net income (loss) | $ | 918 | $ | 16,413 | $ | (90,433 | ) | $ | 10,617 | ||||||
Earnings (loss) per share | |||||||||||||||
Basic | $ | 0.01 | $ | 0.21 | $ | (1.14 | ) | $ | 0.14 | ||||||
Diluted | $ | 0.01 | $ | 0.20 | $ | (1.14 | ) | $ | 0.13 | ||||||
Weighted-average number of common shares outstanding | |||||||||||||||
Basic | 79,430 | 78,680 | 79,055 | 78,564 | |||||||||||
Diluted | 83,624 | 82,536 | 79,055 | 83,064 | |||||||||||
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PEGASYSTEMS INC.
UNAUDITED RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES (1)
(in thousands, except percentages and per share amounts)
Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||||||||
2019 | 2018 | Change | 2019 | 2018 | Change | ||||||||||||||||
Total revenue - GAAP and Non-GAAP | $ | 276,542 | $ | 256,357 | 8 | % | $ | 911,383 | $ | 891,581 | 2 | % | |||||||||
Net income (loss) - GAAP | $ | 918 | $ | 16,413 | (94 | )% | $ | (90,433 | ) | $ | 10,617 | * | |||||||||
Amortization of intangible assets | 1,018 | 2,935 | 6,625 | 11,443 | |||||||||||||||||
Stock-based compensation (2) | 20,666 | 16,289 | 80,909 | 63,862 | |||||||||||||||||
Foreign currency transaction (gain) loss | (1,242 | ) | (1,863 | ) | 2,335 | (2,421 | ) | ||||||||||||||
Income tax effects (3) | (5,678 | ) | (7,294 | ) | (34,518 | ) | (37,495 | ) | |||||||||||||
Net income (loss) - Non-GAAP | $ | 15,682 | $ | 26,480 | (41 | )% | $ | (35,082 | ) | $ | 46,006 | * | |||||||||
Diluted earnings (loss) per share - GAAP | $ | 0.01 | $ | 0.20 | (95 | )% | $ | (1.14 | ) | $ | 0.13 | * | |||||||||
Non-GAAP adjustments | 0.18 | 0.12 | 0.70 | 0.42 | |||||||||||||||||
Diluted earnings (loss) per share - Non-GAAP | $ | 0.19 | $ | 0.32 | (41 | )% | $ | (0.44 | ) | $ | 0.55 | * | |||||||||
Diluted weighted-average number of common shares outstanding - GAAP | 83,624 | 82,536 | 1 | % | 79,055 | 83,064 | (5 | )% | |||||||||||||
Incremental dilutive shares for Non-GAAP | — | — | — | — | |||||||||||||||||
Diluted weighted-average number of common shares outstanding - Non-GAAP | 83,624 | 82,536 | 1 | % | 79,055 | 83,064 | (5 | )% | |||||||||||||
* not meaningful
(1) Our Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures. They should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.
Our Non-GAAP financial measures reflect adjustments based on the following items:
• | Amortization of intangible assets: We have excluded the amortization of intangible assets from our Non-GAAP operating expenses and profitability measures. Amortization of intangible assets fluctuates in amount and frequency and is significantly affected by the timing and size of our acquisitions. Investors should note that the use of intangible assets contributed to our revenues recognized during the periods presented and is expected to contribute to our future period revenues as well. Amortization of intangible assets is likely to recur in future periods. |
• | Stock-based compensation: We have excluded stock-based compensation from our Non-GAAP operating expenses and profitability measures. Although stock-based compensation is a key incentive offered to our employees, and we believe such compensation contributed to our revenues recognized during the periods presented and is expected to contribute to our future period revenues, we continue to evaluate our business performance excluding stock-based compensation. |
• | Foreign currency transaction (gain) loss: We have excluded foreign currency transaction gains and losses from our Non-GAAP profitability measures. Foreign currency transaction gains and losses fluctuate in amount and frequency and are significantly affected by changes in foreign exchange market rates. Foreign currency transaction gains and losses will recur in future periods. |
For additional information about our use of Non-GAAP measures, the reasons why management uses these measures, the usefulness of these measures, and the material limitations on the usefulness of these measures, see “Discussion of Non-GAAP financial measures” included earlier in this release and below.
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(2) Stock-based compensation was:
Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||
(in thousands) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Cost of revenues | $ | 4,605 | $ | 4,585 | $ | 18,822 | $ | 16,862 | |||||||
Selling and marketing | 8,610 | 6,342 | 32,665 | 23,237 | |||||||||||
Research and development | 4,948 | 3,919 | 18,938 | 15,274 | |||||||||||
General and administrative | 2,503 | 1,443 | 10,484 | 8,489 | |||||||||||
$ | 20,666 | $ | 16,289 | $ | 80,909 | $ | 63,862 | ||||||||
Income tax benefit | $ | (4,166 | ) | $ | (3,346 | ) | $ | (16,392 | ) | $ | (13,383 | ) | |||
(3) Effective income tax rates were:
Year Ended December 31, | |||||
2019 | 2018 | ||||
GAAP | 33 | % | 192 | % | |
Non-GAAP | 22 | % | 25 | % | |
Our effective income tax rate under GAAP is subject to significant fluctuations due to a variety of factors, including excess tax benefits generated by our stock-based compensation plans, tax credits for stock-based compensation awards to research and development employees, and unfavorable foreign stock-based compensation adjustments. We determine our Non-GAAP income tax rate by using applicable rates in taxing jurisdictions and assessing certain factors, including our historical and forecast earnings by jurisdiction, discrete items, and our ability to realize tax assets. We believe it is beneficial for our management to review our Non-GAAP effective income tax rate on a basis consistent with the effective income tax rate in our annual plan as established at the beginning of each year given this tax rate volatility.
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PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, 2019 | December 31, 2018 | ||||||
Assets | |||||||
Cash, cash equivalents, and marketable securities | $ | 68,363 | $ | 207,423 | |||
Receivables (billed and unbilled) | 501,675 | 504,765 | |||||
Goodwill | 79,039 | 72,858 | |||||
Other assets | 335,735 | 197,507 | |||||
Total assets | $ | 984,812 | $ | 982,553 | |||
Liabilities and stockholders’ equity | |||||||
Accrued expenses, including compensation and related expenses | $ | 152,127 | $ | 127,814 | |||
Deferred revenue, current | 190,080 | 185,145 | |||||
Other liabilities | 103,595 | 48,063 | |||||
Stockholders’ equity | 539,010 | 621,531 | |||||
Total liabilities and stockholders’ equity | $ | 984,812 | $ | 982,553 | |||
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31, | |||||||
2019 | 2018 | ||||||
Net (loss) income | $ | (90,433 | ) | $ | 10,617 | ||
Adjustments to reconcile net (loss) income to cash (used in) provided by operating activities | |||||||
Non-cash items | 99,251 | 73,027 | |||||
Change in operating assets and liabilities, net | (50,983 | ) | 20,712 | ||||
Cash (used in) provided by operating activities | (42,165 | ) | 104,356 | ||||
Cash provided by (used in) investing activities | 70,074 | (48,196 | ) | ||||
Cash (used in) financing activities | (74,258 | ) | (101,460 | ) | |||
Effect of exchange rate changes on cash and cash equivalents | 290 | (2,557 | ) | ||||
Net (decrease) in cash and cash equivalents | (46,059 | ) | (47,857 | ) | |||
Cash and cash equivalents, beginning of period | 114,422 | 162,279 | |||||
Cash and cash equivalents, end of period | $ | 68,363 | $ | 114,422 | |||
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PEGASYSTEMS INC.
ANNUAL CONTRACT VALUE (“ACV”) (1) (2)
(in thousands, except percentages)
December 31, | Change | |||||||||||||||
2019 | 2018 | Reported | Constant currency | |||||||||||||
Maintenance | $ | 292,696 | $ | 269,708 | $ | 22,988 | 9 | % | 8 | % | ||||||
Term | 231,267 | 190,349 | 40,918 | 21 | % | 21 | % | |||||||||
Client Cloud | 523,963 | 460,057 | 63,906 | 14 | % | 14 | % | |||||||||
Pega Cloud | 169,329 | 109,973 | 59,356 | 54 | % | 54 | % | |||||||||
Total ACV | $ | 693,292 | $ | 570,030 | $ | 123,262 | 22 | % | 22 | % | ||||||
(1) Total ACV, as of a given date, is the sum of the following two components:
• | Client Cloud: the sum of (1) the annual value of each term license contract in effect on such date, which is equal to its total license value divided by the total number of years and (2) maintenance revenue reported for the quarter ended on such date, multiplied by four. We do not provide hosting services for Client Cloud arrangements. |
• | Pega Cloud: the sum of the annual value of each cloud contract in effect on such date, which is equal to its total value divided by the total number of years. |
(2) As foreign currency exchange rates are an important factor in understanding period to period comparisons, we believe the presentation of ACV growth rates on a constant currency basis enhances the understanding of our results and evaluation of our performance in comparison to prior periods.
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PEGASYSTEMS INC.
RECONCILIATION OF FORWARD-LOOKING GUIDANCE
(in millions, except per share amounts)
Year Ended December 31, 2020 | |||
Revenue (GAAP and Non-GAAP) | $ | 1,100.0 | |
Net loss (GAAP) | $ | (70.5 | ) |
Amortization of intangible assets | 4.0 | ||
Stock-based compensation | 101.6 | ||
Income tax effects | (18.4 | ) | |
Net income (Non-GAAP) | $ | 16.7 | |
Diluted loss per share (GAAP) | $ | (0.89 | ) |
Non-GAAP adjustments | 1.09 | ||
Diluted income per share (Non-GAAP) | $ | 0.20 | |
Diluted weighted-average number of common shares outstanding - GAAP | 79.2 | ||
Incremental dilutive shares for Non-GAAP | 5.8 | ||
Diluted weighted-average number of common shares outstanding - Non-GAAP | 85.0 | ||
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